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Richard Asquith of TMF comments on the slow rate of implementation of the new VAT Recovery Claims procedures.

Introduction

On Thursday 31 March, the latest deadline for the submission of European-wide VAT Recovery claims came and went. Despite direct intervention by the European Commission last year to postpone the last deadline due to poor implementation by the 27 member states of a new, electronic procedure, there are still delays and operational issues.

This is hitting businesses across the region that depend on the speedy refund of foreign VAT due to them. In particular, the haulage industry has been hit hardest.

EU VAT Reform of Antiquated VAT Refund Burden

Companies doing business across Europe often incur foreign VAT on expenses, capital equipment and certain services. Since the EU-wide VAT system has not been integrated, companies cannot recover this VAT through their domestic VAT returns. Instead, they must go through a separate VAT recovery application process.

Until 2010, this was a paper-based procedure, requiring companies to complete VAT refund applications in the relevant local language for each state where they had incurred the foreign VAT. This huge bureaucratic burden meant that there was up to Euro 8 billion worth of unreclaimed VAT in the system, or simply ignored.

Following years of lobbying by business, the EU imposed an electronic filing system on all member states.

This required them to develop a single portal for their domestic companies through which they could file VAT recovery claims for all member states in their native language. The member states were then responsible for co-ordinating the refunds with the relevant states.

The initial annual deadline for the new system was set for the end of September 2010 – for claims covering 2009. However, since many countries still had not yet set up their systems, or the systems were not fully functional, the EU intervened to reset the deadline to 31 March 2011.

Problems and cash flow delays persist.

Whilst last year’s deadline helped many countries sort their affairs out, there are still many problems and delays. 

Examples include:

• Luxembourg is still struggling with the roll out of its automated procedures. Claims which took 4-6 months under the old system now take 1 year+. There is no announced date for resolution of these difficulties. This is important for the hard-hit European transport industry, which uses Luxembourg as its regional fuelling station. With its minimum VAT rate (15%) and ultra-low fuel duty of €0.23 per litre (20% VAT and €0.51 in the UK), Luxembourg has always attracted haulage business, which then must attempt to recover the VAT back through reclaims.
• Netherlands the UK’s HMRC is reporting that the messaging system is not fully working, and whilst claims can be submitted, there can be no confirmation of receipt and foreign companies still have to approach the Dutch tax authorities.
• France has improved since last year, but is still mostly paper-based for confirmations of claims processing.  Larger refunds, above €5,000 are probably six months behind where they were.
• Belgium is still not issuing notices, and is only partially running.

Richard Asquith, Head of VAT, TMF Group commented:

“Whilst there have been some improvements, results are still patchy. Key countries are still grappling with the basics, which is leading to long delays for hard-pushed businesses, especially in the haulage sector.  The requirement to implement has hit countries which are already making large budgetary cuts in the current financial crisis.”